No. 2--00--0078

_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

__________________________________________________________________

NATIONAL DATA SERVICES		)	Appeal from the Circuit Court

OF CHICAGO, incINC.				)	of Du Page County.

						)

	Plaintiff-Appellee,		)

						)	

v.						)	No. 98--MR--804

						)

THE DIRECTOR OF EMPLOYMENT	)	

SECURITY,					)	Honorable

						)	John W. Darrah,

	Defendant-Appellant.	)	Judge, Presiding.

_________________________________________________________________

	JUSTICE BOWMAN delivered the opinion of the court:

	Defendant, Director of the Illinois Department of Employment

Security (Director), appeals from the judgment of the circuit court

of Du Page County reversing her decision.  The Director had found

that home workers hired by plaintiff, National Data Services of

Chicago,  Inc., iNC,.,were not independent contractors as defined by

section 212 of the Unemployment Insurance Act (Act) (820 ILCS

405/212 (West 1996)).  On appeal the Director contends that her

decision, finding that plaintiff owed unemployment contributions

under the Act because its home workers were employees, rather than

independent contractors, was not clearly erroneous.  

	On June 18, 1996, the Department of Employment Security

(Department) determined plaintiff to be an employer and made an

assessment that plaintiff was responsible for unpaid contributions

to the unemployment insurance fund in the amount of $24,011.38, plus interest, for the periods covering the third and fourth

quarters of 1992, all four quarters of 1993 and 1994, and the

second through fourth quarters of 1995.  The Department's

determination and assessment resulted from a claim by one of

plaintiff's home workers for unemployment benefits.  Plaintiff

filed a protest and requested an administrative hearing.  A hearing

was held before the Director's representative.  Testimony was

received from plaintiff's president, executive vice-president,

manager of home contracting services, and several home workers

regarding plaintiff's business practices.

	The testimony revealed that plaintiff had approximately 100

home workers.  These workers provided data entry services for

plaintiff's clients.  Before plaintiff gave assignments to

prospective workers, plaintiff tested their ability to perform the

work by providing them with a test batch of cards containing data

typical of a normal assignment.  To be hired, a worker had to

achieve 100% accuracy in keying the data.  The worker was required

to sign a contract, to have an IBM compatible computer, and to

purchase anti-virus software.  The typical worker was a stay-at-

home mother.  The contract signed by a worker described her as an

independent contractor, and the home workers who testified

considered themselves to be independent contractors.  

	Plaintiff provided the workers with software to assist them in

doing work although the workers were not required to use it.  They

could create their own, but, according to Colleen Rice-Prieboy,

manager of the home contracting services, no one used her own

software.  Plaintiff provided home workers with the instructions for an assignment that were based on how the particular customer

told plaintiff it wanted its work keyed.  The jobs plaintiff

assigned to its home workers were to be picked up and dropped off

at plaintiff's place of business.  The work could be picked up and

dropped off for the home worker by another individual.  The

assignments were left at a counter inside a separate entrance to a

small vestibule of plaintiff's building.  This was the only access

home workers had to the building.  They were not allowed entrance

to any other part of the building or use of its facilities.  Rice-

Prieboy and Steve Gruner, plaintiff's executive vice president,

testified that this policy was based on the fact that a lot of its

in-house work involved confidential information.  Denying home

workers access to other parts of plaintiff's premises also was for

their safety, since plaintiff's premises housed a production

center.

	Typically, the type of work being performed by home workers

was the data entry of information from warranty cards into files,

created by plaintiff's software, onto computer diskettes provided

by the home workers.  According to Rice-Prieboy, the amount of work

assigned to a home worker depended on how much was available and

how much the worker wanted.  A worker was not required to take a

minimum amount of work and could refuse work without repercussion. 

A worker was required to meet the deadline for return of the work,

which was typically three days.  Those jobs that required a 24-hour

turn-around time, were of a sensitive nature, involved complex

documents requiring supervision to complete the task, or required

the information to be keyed directly into a database or remote server were performed by 10 in-house employees.  These people had

set hours, participated in employee benefit packages, were paid

every two weeks and on time, and could be promoted.

	Home workers were not required to perform services on given

days or at given times during the day.  They did not receive

vacation time, sick pay, retirement pay, or other benefits.  Also,

home workers were not prohibited from hiring an assistant, although

none of those testifying had done so.  Home workers could accept

data entry work from other companies.  They could not solicit or

accept business directly from plaintiff's clients.

	Plaintiff did not conduct periodic evaluations or formal

reviews of home workers as it did  with its in-house employees.  Nor

did plaintiff visit a home worker's home to inspect, supervise, or

control work.  A home worker's work product was subject to a

"compliance review" by plaintiff.  After a home worker submitted

her work product to plaintiff, plaintiff reviewed the work for

accuracy and compliance with the specifications provided for the

work.  Plaintiff removed charges for any unacceptable work at a

piecework rate.  The rate of pay was $65 per 1,000 cards.  A home

worker's services would be terminated if the quality of her work

was poor or she was unable to meet job deadlines.  

	Plaintiff provided its home workers with form invoices on

which they would indicate the amount plaintiff owed them for their

services.  The home workers would submit these invoices along with

their finished work product.  Steve Gruner testified that he was

involved in setting the pricing for plaintiff's customers and for

establishing the prices to be paid to home workers for the customer's jobs.  Typically, workers were paid by plaintiff once a 

month, although the parties contracted for payment within 45 days

after plaintiff completed its compliance review of the worker's

work product.  Occasionally, plaintiff was late in paying workers

because of cash flow problems.  

	Plaintiff had a $10 million overall projected revenue.  Out of

that sum, $1 million was generated by the services provided by home

workers.  Dennis Dee, plaintiff's president, explained that

plaintiff's two primary considerations for deciding to give out

work to home workers were the capital outlay and the difficulty in

finding 50 full-time employees to do the data entry work that the

home workers provided.  Steve Gruner stated that it would cost up

to $10,000 per work space for each full-time employee that would be

needed to perform the services provided plaintiff by a home worker. 

	The Director's representative found that plaintiff failed to

meet its strict burden of proof under all of the provisions of

section 212 of the Act and that, therefore, plaintiff's home

workers constituted employees, not independent contractors. 

Plaintiff filed objections to this decision.  After reviewing the

evidence presented at the administrative hearing, the Director

overruled plaintiff's objections, finding that plaintiff had met

none of the conditions set forth in section 212.  Plaintiff filed

a complaint for administrative review in the circuit court of Du

Page County.  The court reversed the Director's decision, and this

appeal ensued.

	The Director contends that the trial court erred in reversing

her decision that the home workers who perform services for

plaintiff are employees rather than independent contractors.  

	Judicial review of the Director's decision is governed by the

Administrative Review Law (735 ILCS 5/3--110 (West 1996); 820 ILCS

405/2205 (West 1996)) and encompasses all questions of law and fact

presented by the record.  Cohen Furniture Co. v. Department of Employment Security, 307 Ill. App. 3d 978, 981 (1999).  Our role is to review the Director's decision and not the circuit court's

determination.  XL Disposal Corp. v. Zehnder, 304 Ill. App. 3d 202, 207 (1999).  The Director's factual findings are held to be prima facie true and correct and will not be disturbed unless they are contrary to the manifest weight of the evidence.  Jones  v. Department of Employment Security, 276 Ill. App. 3d 281, 284 (1995).  However, questions of law decided by the Department are

not entitled to such deference and are reviewed de novo.  Cohen, 307 Ill. App. 3d at 981.

	When a case involves an examination of the legal effect of a

given set of facts, it involves a mixed question of fact and law

and a "clearly erroneous" standard of review applies.  City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998).  The "clearly erroneous" standard rests somewhere

between "manifest weight of the evidence" and de novo, requiring the reviewing court to afford some deference to the administrative

agency's experience and expertise.  Randolph Street Gallery v. Zehnder, 315 Ill. App. 3d 1060, 1064 (2000).  Under this standard, this court must accept an administrative agency's findings unless we are firmly convinced that the agency has committed a mistake.  Randolph Street Gallery,  315 Ill. App. 3d at 1064.  

	In the present case the relevant facts are undisputed.  We

must consider whether the Director correctly applied these facts to

the elements set forth in section 212 of the Act in reaching her

decision that plaintiff's home workers did not meet the independent

contractor's exception set forth in that statutory provision. 

Because this case involves the examination of the legal effect of

a given set of facts, it involves a mixed question of fact and law

and, therefore, we apply a "clearly erroneous" standard in

examining the Director's decision.  City of Belvidere, 181 Ill. 2d at 205.

	Section 1400 of the Unemployment Insurance Act requires an

employer to make unemployment contributions to a fund with respect

to wages payable for employment.  820 ILCS 405/1400 (West 1996);  Cohen, 307 Ill. App. 3d at 981.  The Act is not a taxing act but one passed to alleviate the perils of unemployment and, therefore,

it should receive a liberal construction.  Jack Bradley, Inc. v. Department of Employment Security, 146 Ill. 2d 61, 73 (1991).  The Act defines employment as "any service *** performed by an

individual for an employing unit."  820 ILCS 405/206 (West 1996). 

Section 212 of the Act provides an exception to the contribution

requirement for services performed by independent contractors.  820

ILCS 405/212 (West 1996);  United Delivery Service v. Didrickson, 276 Ill. App. 3d 584, 587 (1995).  

	Section 212 of the Act provides the conditions that must be

met for a worker to be considered an independent contractor.  That

section provides:

	"Service performed by an individual for an employing

unit, whether or not such individual employs others in

connection with the performance of such services, shall be

deemed to be employment unless and until it is proven in any

proceeding where such issue is involved that--

	A.	Such individual has been and will continue to be free from control or direction over the performance of such

services, both under his contract of service and in fact; and

	B.	Such service is either outside the usual course of the business for which such service is performed or that such

service is performed outside of all the places of business of

the enterprise for which such service is performed; and

	C.	Such individual is engaged in an independently established trade, occupation, profession, or business."  820

ILCS 405/212 (West 1996).

	A strict burden of proof is placed upon an employer seeking

exemption from unemployment contributions under section 212, and

all three conditions must be established before an exemption is

allowed.  AFM Messenger Service, Inc. v. Department of Employment Security, 315 Ill. App. 3d 308, 313 (2000).  When interpreting the term "independent contractor" under section 212, our inquiry is

directed to the actual rather than the alleged relationship of the

parties, and the designations and terminology used in the contracts are not controlling.  AFM Messenger Service, 315 Ill. App. 3d at 313-14.

	The first condition that plaintiff must establish is that its

home workers were free from its control or direction.  Control or

direction for the purpose of section 212(A) means that an employer

has the right to control and direct the worker, not only as to the

work to be done, but also as to how it should be done, whether or

not that control is exercised.  56 Ill. Adm. Code §2732.200(g)

(1991).  Even though the details of the service performed are left

to the individual worker, a worker is under "control" as used in

section 212(A) if the worker is under the general control of the

employer.  Bennett v. Department of Employment Security, 175 Ill. App. 3d 793, 797 (1988).  The existence of general control is to be

determined by examining the particular facts of each case.  AFM Messenger Service, 315 Ill. App. 3d at 314.  

	In its brief plaintiff lists 25 questions that section

2732.200(g) of the Illinois Administrative Code (56 Ill. Adm. Code

§2732.200(g) (1991)) cites as illustrative of the types of

questions the Director will examine in determining whether control

or direction exists.  Plaintiff then concludes that 22 of the

factors support a finding that the home workers were free from

direction or control.  We, however, agree with the Director that

this conclusion is belied by the record.  Nonetheless, the type of

business being reviewed by the Director and the relationship being

examined determine which questions are asked in any given review

under section 212(A) of the Act, and no one question or answer or

combination of questions and answers will determine whether direction or control exists.  56 Ill. Adm. Code §2732.200(g)

(1991).  Rather, the business reality or the totality of the

circumstances determines the existence of direction or control.  56

Ill. Adm. Code §2732.200(g) (1991).

	In concluding that plaintiff's home workers were subject to

its direction and control, the Director's representative relied

almost exclusively, as pointed out by the Director, on the fact

that the written contract was drafted by plaintiff.  The

representative determined that, in a usual independent contractor-

employer relationship, it is the independent contractor rather than

the employer that drafts the contract for the services to be

performed.  While a factor to be considered, the Director declined

to conclude that this factor, alone, was determinative of the issue

of plaintiff's direction and control.  

	We note, however, that the representative also relied on the

fact that plaintiff could terminate the use of the home worker's

services if plaintiff was dissatisfied with the worker's

performance.  This factor, as pointed out by the representative,

has long been determinative of whether an employer-employee

relationship exists.  See Rozran v. Durkin, 381 Ill. 97, 101 (1942).  

	In her decision the Director determined that plaintiff's

control and direction were apparent from the fact that whether

plaintiff gave any work to home workers depended upon whether

plaintiff's turnaround time was short, whether the clients'

information was sensitive, or whether the information was to be

keyed directly into a database or a remote server.  In such instances, plaintiff determined that the work should be kept in-

house with employees performing essentially the same services as

home workers.  But, where plaintiff's control could be limited to

setting a deadline for the return of work and reviewing the final

product, plaintiff gave the work out to home workers.  In making

the distinction as to which jobs should be performed by employees

and which should be done by home workers, the Director concluded

that plaintiff decided exactly how much control over details it

wanted to exercise and that this decision was determinative of

general control.

	The evidence presented at the administrative hearing showed

that plaintiff's home workers were required to follow a routine. 

The batches of cards, containing the information the workers were

to key, were to be picked up and dropped off at plaintiff's place

of business during normal business hours.  The home workers

followed instructions put together by plaintiff indicating how

clients wanted the data entered.  These instructions accompanied

the cards.  Typically, the cards were to be returned within three

days along with a computer diskette, provided by the home workers,

upon which the information had been entered.  At the time the work

was dropped off, the home worker would submit an invoice, a form

provided by plaintiff, indicating the quantity of cards returned. 

Payment was at the rate of $65 per 1,000 cards.

	Although no training was required or provided by plaintiff to

be a home worker, plaintiff ascertained a prospective worker's

ability to do the data entry work by providing the individual with

a test batch of documents.  If the worker did not achieve a 100% accuracy rate, she was not hired.  The quality of the worker's work

product and the ability to meet a deadline were plaintiff's most

important requirements, and, if either requirement was not met, a

home worker's services were terminated.  

	The pricing and payment with respect to the services performed

by the home workers were controlled by plaintiff.  Plaintiff

determined what to charge its customers and also decided the

piece

work rate for each assignment.  Home workers were compensated

by plaintiff, not its customers, and once the work product passed

plaintiff's "compliance review," plaintiff became obligated to pay

the home workers.  Thus, as the Director points out, plaintiff bore

the risk of noncollection of payment for its customers, a factor

that has been identified as evidencing control.  Zelney v. Murphy, 387 Ill. 492, 504 (1944); AFM Messenger Service, 315 Ill. App. 3d at 315.

	In an effort to discount the aforementioned facts showing

direction or control, plaintiff relies largely, as the Director

points out, on freedoms it permitted the home worker to enjoy such

as deciding whether to take work and when to work, whether to hire

helpers, and whether to work for other data entry companies. 

Plaintiff cites United Delivery Service, Ltd. v. Didrickson, 276 Ill. App. 3d 584 (1995), in support of this position.  However,

determining whether section 212(A) applies depends upon a case-by-

case study.  AFM Messenger Service, 315 Ill. App. 3d at 314.  The fact that comparable freedoms relied upon by the court in United Delivery Service, Ltd. formed the basis for the court's decision that the employer did not control or direct the performance of its drivers does not discount the circumstances existing here whichthat

established plaintiff's general control.  In light of these

circumstances, we cannot say that we are firmly convinced that the

Director's decision that the home workers were under the general

control of plaintiff was clearly erroneous.  

	Given our determination that plaintiff failed to prove the

first condition of section 212 and that all three conditions must

be met to obtain exemption from making unemployment contributions,

we need not address the arguments raised regarding the other two

conditions.  We find, therefore, that the trial court erred in

reversing the Director's decision.

	Accordingly, the judgment of the circuit court of Du Page

County is reversed.

	Reversed.

	HUTCHINSON, P.J., and GEIGER, J., concur.